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How ISA's work
db09striker
Posted: 07 April 2017 16:38:16(UTC)
#1

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Hi,

I think I may have messed up, and may have been messing up all my life with ISA's...

I have just been told something by people on another forum and wanted to clarify it here....


Over many years I have thought the following, like this guy called Boris....

Boris wants to save all his £100,000 for the next 10 years and wants to get as much tax free saving out of his ISA as he can, he will save the rest in other savings accounts....

Tax Year 1:
Say a bloke called Boris opens an ISA, his first ISA ever. He has inherited £100,000.
Say the ISA allowance is £10,000.
Boris puts in £10,000.

Tax Year 2:
The allowance is now £11,000.
Boris tops up his ISA up by £1000 at the beginning of the tax year so he has the full allowance of £11,000 in his ISA.

Tax Year 3
The allowance is now £12,000.
Boris tops up his ISA by £1000 at the beginning of this tax year so he has the full allowance of £12,000 in his ISA.

I am like Boris - this is what I have done for years....


BUT....I've just been told.....

That is actually what Boris could have done according to people I have spoken to....

Tax Year 1:
Boris puts £10,000 in his ISA.

Tax Year 2:
Boris SHOULD have topped up his ISA by £11,000, so he now has £21,000 in his ISA.

Tax Year 3:
Boris SHOULD have topped up his ISA by £12,000, so he now has £33,000 in his ISA.



Can someone clarify which way ISA's work.....

Thanks.
Sara G
Posted: 07 April 2017 16:52:22(UTC)
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The second scenario is correct.

There is an annual allowance (£20K this year), which can't be carried forward, so it makes sense to put in as much as you can afford up to the limit. All returns, whether from dividends or capital growth are then tax free, and do not impact on the size of next year's allowance.
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Tony Peterson on 08/04/2017(UTC)
andy mac
Posted: 07 April 2017 16:53:09(UTC)
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option 2 is correct
10K year one followed by another 10 K in yr 2 giving a total of 20K + interest or dividends etc
So after 10 years if the allowance stayed at £10K / tears you would have invested 100K

Sorry if you were doing option 1 but you are allowed £20K this tax year in a sticks and shares ISA
1 user thanked andy mac for this post.
Tony Peterson on 08/04/2017(UTC)
db09striker
Posted: 08 April 2017 11:02:27(UTC)
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Bugga!.

I have been doing it wrong, completely wrong. What a plonker!

Though in the grand scheme of things I doubt it amounts to much money that I've missed out on as interest rates are practically non-existent.

I have hefty savings, but mainly saved them during the past 3 years and interest rates have been awful during that time.


What has annoyed me most is.....

With house prices being out of my reach, I decided to give up on savings accounts and chose to go into investing (Stocks and Shares ISA's) a few months back.

So I opened my first Stocks and Shares ISA a few months back. I used the full allowance of around £15,000....

As the new tax year (this year) was going to be £20,000. I assumed that you just topped the £15,000 up by £5000....

And so I thought this tax year I would only be able to add £5000 to my tax free investing....

As I wanted this whole £20k allowance in a stocks and shares ISA and not use up any of my allowance in any savings ISA's.......wait for it.......

I scrapped my Help To Buy ISA just before the start of this tax year. I wiped out any benefit I would have got from that so that I could fully get what I presumed was the max I could get - £20k tax free.


So now I have found out I did not need to scrap it as last tax year is completely separate from this tax year and does not count towards the allowance this year.

BUGGA!!!

I guess there is no-way to reinstate that account now?


I had only accumulated a Help To Buy £500 bonus, and at the current state of the housing market I probably would not have been able to buy a property ever anyway....That is why I am in stocks now....

Hopefully if all goes well in stocks that £500 will be pretty meaningless anyway. As I am in penny stocks with a good chance of bagging big gains - enough to buy a property outright. That is my hope anyway.

Tony Peterson
Posted: 08 April 2017 16:54:56(UTC)
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Sadly, you have it seriously wrong.

Each tax year entitles you to a new contribution. That has nothing to do with what you have contributed in previous years. You can put in a full £20K this new tax year no matter what you have contributed earlier.

Tony Peterson
Posted: 08 April 2017 16:59:15(UTC)
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And, furthermore being in "penny stocks" is an even bigger booboo.

The penny stocks merchants are little different from boiler room scammers.
2 users thanked Tony Peterson for this post.
Keith Hilton on 08/04/2017(UTC), Ron Dawes on 20/04/2017(UTC)
db09striker
Posted: 08 April 2017 17:30:26(UTC)
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oh well - interest rates virtually don't exist so I've probably missed out on £100 over the past 4 years. Not exactly much money. At least I understand how it works now....I now know I can open a Lifetime ISA this year, as I thought I would not be able to based on how I thought ISA's worked. These Lifetime ISA's actually do return some decent money. £1000 a year.


I am pretty sure Penny stocks aren't that bad. Some are yes, especially on the OTC markets - which I don't go near.

If a trusted mining guru can pick 5 stocks at the beginning of the year and all 5 of them to go up, 2 of them 20x. Then that isn't just luck, plus this mining guru also knows companies inside out - so knows they aren't scams. So this point I am making alone discounts the theory that all penny stocks are scams....

88E is the main stock I've invested in. It's management have a good record, they are not scammers. So to generalise that penny stock companies are scammers is absolute rubbish.

The risk here is not whether the company is a scam or not, the risk here is can they or can't they economically extract oil. And it's the flip of a coin whether I lose a small fraction of my overall savings or I profit in massive amounts - enough to buy a house outright.

I am taking risk - yes. I have to - I want to buy a house. Putting my money in apple or google is not going to buy me a house.

Tony Peterson
Posted: 08 April 2017 17:44:14(UTC)
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striker

I am very old man and my wife and I had to struggle to get a mortgage to buy our first home in 1975. It was an important move for us. ( We are sympathetic to you in your your present position.)

Since then we have prospered. We think you are right to want to acquire ownership of your own home.

But, as I see it, "gurus" who post of their intimate knowledge of mining stocks (we hold a few, but not exactly penny stocks) should be treated with scepticism.

For instance, if I knew that one of our mining holdings was grotesquely undervalued, would I tell anyone? We could certainly find a lot of pennies to buy stocks with any hope of recovery. The ones that are promoted by boiler rooms and semi-scammers will not make you rich. Analysis, and serious investment, on the other hand, might.
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Sara G on 08/04/2017(UTC)
King Lodos
Posted: 08 April 2017 18:00:17(UTC)
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db09striker;45651 wrote:
If a trusted mining guru can pick 5 stocks at the beginning of the year and all 5 of them to go up, 2 of them 20x. Then that isn't just luck, plus this mining guru also knows companies inside out - so knows they aren't scams. So this point I am making alone discounts the theory that all penny stocks are scams....


When anyone talks about 'penny stocks', it means they're listening to the wrong people .. You've got to get out of that gambler mentality if you want to hold on to your money.

It's always been a small step from a boiler room scam .. When a sector like mining's doing well (as it has been recently) you can make some quick profits buying absolute Junk .. But at some point you're stuck with these awful investments that are nearly impossible to sell.

If it was easy to make money, you'd just have computers buying penny stocks 24 hours a day .. But over thousands of trades – like any kind of gambling – you realise the only people making money are ones you're paying dealing fees too.
2 users thanked King Lodos for this post.
Tony Peterson on 08/04/2017(UTC), Keith Hilton on 08/04/2017(UTC)
Sara G
Posted: 08 April 2017 18:23:05(UTC)
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I agree with all the words of caution above, but 88E does look interesting... shares rose 6% this week following approval of a drilling permit in Alaska. This is certainly a high risk bet, but not necessarily a scam - unless the person tipping them is charging a fortune for his services of course.
andy mac
Posted: 08 April 2017 20:52:03(UTC)
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Funnily enough 88e was put on my screen last week by my elder son. one of his mates was saying it was the next big thing since Hurricane energy, My son and I had got in on Hurricane at 9p just last february or there about. We were in and out a couple of times and then stayed in having taken out our original investment. Now son had told his mate, who never did buy in but since has been trying to get the next biggee. So a friend and myself had both looked at 88e and decided big risk either crash or take off like a rocket. Yes it did make some gains this week but not one Im willing to risk.

Why the difference to Hurricane. I was given advice to buy as it was down from 40p to 8p, buy some put it in a pension and it would hopefully improve. This person was in the oil industry and worked in the North Seas for 20 years and now does technical sales. No one expected a 15 month time scale.

Striker it appears that you have stumbled on the golden goose that lays penny shares and you are bound to make loads of money. Tony P and King Lodos both tell you its likely to end in tears. If I were you I would go back to scratch sort out your Isas and then do your own research and make up your mind. Remember there is a good chance that you will loose money but you might not
What is your attitude to risk and loss and what is your timescale. Use your ISA and perhaps use one of the portfolios your platform has and build steadily.
On the other hand there is William Hill who will happily take your money on a risk

Good Luck


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Sara G on 08/04/2017(UTC)
Jim Thompson
Posted: 09 April 2017 06:43:34(UTC)
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Striker.

I am going to be very blunt with you, please forgive me.

The type of investments you are keen on requires, in my opinion, for you to keep a very sharp eye on them and have a great deal of knowledge and experience in order not to lose all your money. And since you didn't understand how the annual ISA allowance works, then I think you should stick to more mainstream stock related investments. Sorry!

A friend of mine is always trying to do a massive deal which will make him rich and sort him out for retirement, but he never seems to have anything to show for it not does he learn from the past. His upcoming purchase of a commercial property with cheap flats above made me wince a bit. Eggs and basket..

Stick a bit each month in an ISA wrapper stocks and shares investment, and put some savings in cash too, as you save up for your house. I don't bother with cash ISA's any more as the rates are so rubbish, I just keep enough in a normal savings account for a rainy day and to diversify from shares.
3 users thanked Jim Thompson for this post.
Tony Peterson on 09/04/2017(UTC), andy mac on 09/04/2017(UTC), Ron Dawes on 20/04/2017(UTC)
Ron Dawes
Posted: 20 April 2017 09:42:31(UTC)
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I agree with the other posters on here. For someone to go from putting money in a cash ISA and is unaware of how ISA's work, to putting money into penny shares is contradictory. Putting money into penny shares is not investing, it is gambling. You don't have a good chance of finding a 20 bagger, you have a very slim chance. You do though, have a very good chance of losing all of your money.
There is a big difference in a good idea and a good company. No, most are not scammers but they do keep coming back to their investors for more money to keep going or loading even more debt in other ways. It's not a good way to get onto the housing market. It smacks of desperation.
Sorry to be so blunt but I expect many of us, including me, have gone through the mistakes that you are now making before we realised those errors.
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Guest on 20/04/2017(UTC)
Alan Selwood
Posted: 20 April 2017 15:09:03(UTC)
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Small metals mining stocks and small oil exploration stocks have two things in common - (i) the results are 'feast or famine' because their sectors are extremely cyclical, and (ii) most of them go bust, and very few indeed hit the big time for long enough to give the investor a decent profit. They are at the top end of the high-risk stakes, and the greatest probability for the small, inexperienced investor is that he or she will stand to lose much more than he or she gains. You have to be exceptionally clever and lucky to get both the right stock selection and the right timing of purchase and sale to do any good.

I would rate them as worse deals than football pools, premium bonds and the lottery, and that is saying something!

If you want to be a successful and profitable investor, it pays to study the most successful ones (not just listen to the ones with the best spiel, or to those offering the greatest gains without emphasising that such choices also have the greatest potential to wipe you out).

If you look at the investing behaviour of seasoned investors with an excellent long-term track record, you find people like this:

a) He invests in very small companies where the potential for growth is very high among some companies, but totally loss-making in others, not because the manager is reckless or stupid but because that is how it goes in reality. The companies that subsequently do consistently well get added to, and the losses serve to remind the manager that he is not infallible.
Because he knows his limitations (despite his great experience and skill, and his 'nose' for good investments), he spreads his risk over typically 150 to 200 different companies that he thinks are worth investing in at all. In this way, he gets very good results overall, without losing heavily because of those investments that turn out to be bad ones after all.
Who is he? Giles Hargreave of Marlborough Fund Managers. Past track record over 5 years from his Marlborough UK Micro Cap Growth? Up 126.8%.

b) He has no time for companies that are not already extremely robust and profitable, and showing every sign of being the most impregnable of any companies in the world. Once he has drawn up a shortlist of the only companies he considers good enough to meet his demanding criteria, he selects 25 to 30 of the best of them, while continuing to monitor the rest in case he needs to demote one that he has already selected for investment because it loses its way.
Who is he? Terry Smith of Fundsmith. Past track record over 5 years from his Fundsmith Equity T Acc units? Up 156.6%.

I have only had 51 years of learning from my investment mistakes, so if you are newer to investments than me, please do very careful due diligence on any investments you pick yourself and study what the best of the professionals do, or you could easily make some of my mistakes too.
6 users thanked Alan Selwood for this post.
andy mac on 20/04/2017(UTC), Dan Mall on 20/04/2017(UTC), Nigel G on 20/04/2017(UTC), Jeff Liddiard on 20/04/2017(UTC), Ron Dawes on 20/04/2017(UTC), Guest on 20/04/2017(UTC)
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